A new kind of alpha in the market that big money managers are chasing

Stock pickers have long sought to beat the market, and most continue to fail, with the rate of underperformance of U.S. large-cap mutual funds, after fees, against the S&P 500 between 80%-90% of all funds over a decade. But there are ways to think about generating what is known as alpha — outperformance of a benchmark — at a broader portfolio construction level, using strategies that involve assets from cash to bonds to commodities. This approach is a focus for asset management firms from Pimco to State Street Investment Management, both of whom joined this week’s CNBC “ETF Edge” to discuss where they are looking for differentiated returns outside the U.S. large-cap stock market.

These managers are not saying that the U.S. stock market won’t continue to do well. But amid big swings in equity markets on geopolitical headlines, macro uncertainty, and central bank interest rate policies around the world that are diverging, the classic advice to seek diversification in a portfolio and make tweaks on the margins may lead to a little extra juice in 2026 returns.

Matthew Bartolini, State Street

Investment Management’s global head of research strategists, noted that 2025 was the first year since 2019 that stocks, bonds, gold and commodities all outperformed cash. “That’s where the idea of craftsmanship alpha or portfolio construction alpha can come from, not beating an index alpha,” he said.

Start with your cash

Investors can start thinking about that in the context of their cash.

With a huge amount of assets being held in cash-equivalent accounts, “even that is alpha from departing from that cash,” Bartolini said.

“To manage cash is the first step,” said Jerome Schneider, Pimco’s head of short-term portfolio management, adding that enhanced cash accounts can generate 1%-2% more than a traditional cash account.

Pick bonds, not stocks

Investors can also think about it in terms of looking for extra return from bonds while not attempting to beat the S&P 500, according to Schneider. Pimco offers an ETF corresponding to this idea, recently launching the actively managed PIMCO US Stocks PLUS Active Bond ETF (SPLS) that combines passive exposure to the S&P 500 with active fixed income strategies.

Schneider said Pimco expects economic growth to remain healthy in 2026, even as the U.S. economy shows signs of uneven performance across households and sectors. But he added it is important to look beyond U.S. markets, and cited the divergent monetary policy paths across countries, from Canada to Japan and Australia to the United Kingdom, as a source of relative-value opportunities. “[We] have monetary policies that are very divergent for the first time in almost a financial generation,” Schneider said.

He said investors should also think broadly about fixed-income exposure, including securitized assets such as agency mortgages, rather than just corporate credit late in the cycle. Schneider cautioned passive benchmarks could limit flexibility at a time when…